An economic giant’s Achilles heel

December 16, 2010

A year ago, Nick Carey went on a road trip around America for a project called “Route to Recovery” that took him to places hit hardest by the recession. Nick went to Saginaw, Michigan, this time for a follow-up special report on the manufacturing sector and structural unemployment: “Is America the sick man of the globe?”

One of the characters he met was Olen Ham, a retired GM worker and UAW member who is among the last of those who took part in the historic “Sitdown Strike” in 1936 that he says helped create America’s middle class. You can hear from Olen in this video:

Manufacturing has borne the brunt of the lay-offs in recent years, as this graphic shows:

US_BLUECOLLAR1210

Here’s another graph that shows how unemployment and manufacturing are closely linked.

US_MFGJOBS1210

And what did America do instead of build things? Finance. Former Ohio Attorney General Richard Cordray (who failed to win reelection in November) has described the credit binge of recent years as a “Roman orgy” of debt. Our last graphic shows how the financial sector has taken over from manufacturing since the 1980s.

US_MFGVFIN1210

One of the biggest names in finance put it like this:

“Over the past 20 years we have simply borrowed more money in order to prosper,” said Bill Gross, co-chief investment officer of the world’s biggest bond fund manager PIMCO. “We forgot that the more stable and safe way to go is to make things.”
“Now we’re paying the price.”

To read Nick’s special report in multimedia PDF format, click here.


8 comments

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Bill Gross’s inclusion of everyone in his statement about “we” having borrowed more money and are now paying the price, ignores the imposition of this unsustainable system upon the masses. The middle class has watched for decades the exporting of their jobs and downward pressures on wages, while stretching to make rent or mortgage payments in order to house their families, while real estate investors pumped up markets to make a fast buck. It’s almost as if financial and business interests have literally bought and paid for the US government. What other explanation is there for what seems to be a deliberate destruction of the country, leaving only a small number of elites owning everything and everyone.

Posted by Greenspan2 | Report as abusive

Greenspan2, you’re ducking the blame. The reason why American leaders do what they do is that those are the things people vote for. Tell people you’re going to balance the budget, and they vote you into office. Once in office, tell the people that they’re going to have pay taxes and give up some services to balance the budget, and they vote you out of office. The politicians that so many people complain about simply gave the people what they wanted. Who’s to blame? It’s we the people, not somebody else.

Posted by Bob9999 | Report as abusive

Sure, there is plenty of blame to go around, but just as some pigs are more equal, some pigs are mainly responsible. I do know Wall Street has the biggest pigs by far, and the biggest mates in both parties. We know their names, their misdeeds, & the costs. Just 20 years ago, we jailed thousands of bankers for fraud during the S & L crisis, but the lesson lost was we continued deregulation. This time is much worse economically, and politically. In effect no one is responsible, and that is the lie we are living.

Posted by loguealator | Report as abusive

More interesting is that the same elites that pursued these policies (de-taxing the super wealthy, offshoring jobs, de-regulating any and all industries, ignoring the creation of monopolies) for three decades are still at it. They’re still in charge. They’re still pursuing the same policies that have resulted in economic and social disaster. They’re even still using veiled racism to gin up their base at election time.

While this behavior is rational, it does make you wonder how many times the US economy will have to crash before the bums are tossed out. I wonder when Americans will either protest in the streets and/or more to more civilized and professionally run countries like Norway, Denmark, and Brazil. Even Costa Rica has a better and more cost effective health care system than the US.

Posted by FredFlintstone | Report as abusive

And Bob9999, I think you’re missing a key point, as loguealator gets at. You assume we have to continue the policies of the past three decades. In fact, polling shows a majority of voters want to re-tax the super wealthy and doing so will significantly improve the US financial picture. Trimming other favorite sources of political pork, for example, replacing subcontractors in the Defense Department and elsewhere with unionized government employees will both eliminate taxpayers paying for a private profit margin and be far more transparent and legally accountable.

In short, there are any number of ways US politicians can appeal to voters to fix our problems without resorting to the current disastrous set of policies. But it is telling that the best solutions are not mentioned or quickly deep sixed by the political class, for example, a public option for health care (or simply adding groups to Medicare that private insurers don’t want). Or increasing the income level that pays a Social Security tax to keep that program in funds beyond 2035.

Posted by FredFlintstone | Report as abusive

I remember watching Reagan with deep sadness, as he led the gutting of your country. In Australia we can blame Keating, I suppose.
What amazes me about watching the US is how, at a personal level you all seem so reasonable, at a collective level you’re like members of a crazed lynch mob, looking for the next tar-and-featheree.
The great American independence is a wonderful thing, until you count the cost: your health care costs 1/2 again as much as anyone else’s, some people have the choice between sickness & bankrupcy. You’ve led the way in privatising education: graduates all over the world are deep in hock.
Now, you’ve just kneecapped the guy best equipped to fix it.
Hope this helps.

Posted by gryphon | Report as abusive

Right now the smart person is one who spends less and saves more. I became interested in the stock market as a senior in High school in the early 1970s. At that time people had fun with it or whatever, but there was not as much of a lottery mentality that you see today. People respected a person who was conservative in both spending and investing. Today such a person is sometimes thought of as being a bit odd. People have forgotten that money saved is money earned, and tax free. People buy so much stuff these days. Oh, I can’t do without my cell phone, my flat screen, my computer, my nice car, my pretty lawn, my bla bla bla. Most of it is junk that really does not add to anyone’s happiness. And the result is that in the end we have little to show for it, and China and others end up with a bunch of our fabricated money that they use to by more and more of our debt.

Posted by 123456951 | Report as abusive

Bob9999 is right as an Australian I was shocked at the way Americans reacted at attempts to reduce the health care costs in the US. The US pays twice as much per person on health as Australia and from the stories I have read many Americans can’t afford healthcare. Australia has had universal healthcare since 1984.

When the US Government tried to move the money from the insurance companies to the people and reduce costs everyone ran around screaming socialism and stopped the reforms.
Everybody wants everything fixed but nobody wants anything to change.

Posted by Sinbad1 | Report as abusive